A computational approach for optimal joint inventory-pricing control in an infinite-horizon periodic-review system

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

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Original languageEnglish
Pages (from-to)1297-1303
Journal / PublicationOperations Research
Volume59
Issue number5
Publication statusPublished - Sep 2011

Abstract

This note considers a joint inventory-pricing control problem in an infinite-horizon periodic-review system. Demand in a period is random and depends on the posted price. Besides the holding and shortage costs, the system incurs inventoryreplenishment costs that consist of both variable and fixed components. At the beginning of each period, a joint inventory and pricing decision is made. Under the long-run average profit criterion, we show that an optimal policy exists within the class of so-called 4s1 S1p5 policies. This is established based on our algorithmic development, which also results in an algorithm for finding an optimal 4s1 S1p5 policy. Subject classifications: joint pricing and inventory control; setup cost; price dependent demand; stochastic inventory model. Area of review: Manufacturing, Service, and Supply Chain Operations. History: Received May 2003; revisions received May 2004, August 2005, July 2007, May 2009; accepted April 2010. © 2011 INFORMS.